A number of people--both on other blogs and in response to my previous post--have objected to my use of the "dependency ratio" notion to explain the woes of Bethlehem Steel and General Motors. Here is the gist of the argument, from the reader McGurky:
You say that G.M. suffered BECAUSE it successfully reduced the number of workers it needed to produce a given amount of cars by a large percent thus having less workers to pay for retire benefits. But that's just wrong. G.M. can't pay their retiree obligations because they have no profits. The number of current workers they have is irrelevant to their ability to pay or not pay for former employees' benefits. If Rick Wagoner could produce umpteen-billion cars single-handedly after having invested in a 100%-automated assembly line he could be wildly profitable and be able to afford all those old retiree costs and have the worst dependency ratio possible. G.M.'s problem is not that they've reduced the number of their workers but that they haven't reduced the number enough.
This is, I think, a very good example of the "if pigs had wings. . . " line of argumentation. Sure, if Rick Wagoner could produce all of GM's cars by himself, and as a result be wildly profitable, it wouldn't matter how many retirees he had. So what? Rick Wagoner can't do that. He is--like the heads of Bethlehem Steel before him--trapped in a low margin, labor-intensive business, where workforce compensation is a enormous share of the bottom line. McGurky is absolutely right that "GM can't pay their retiree obligations because they have no profits." But why doesn't GM have any profits? Because of the size of their retiree obligations!
The reason I ended the article with the example of what happened when Wilbur Ross took over Bethlehem and started from scratch is because it demonstrates what happens to the core business of old-line manufacturing when the demographic burden is lifted. And the answer is that those seemingly sickly businesses become profitable again!
I think that there's another point here worth exploring. I raise it briefly at the end of "The Risk Pool," but it could easily be the subject of an entire article. Why aren't the heads of the Big Three all campaigning for universal healthcare? One reader points out that Detroit did support the Clinton healthcare initiative, so perhaps their failure to speak up right now around is strategic: that is, they would rather expend political capital on ideas that have an immediate political future. But even if that is true, I don't follow the logic. If the heads of all the old-line manufacturers were to stand up tomorrow and make a combined call for universal healthcare, wouldn't that act alone be sufficient to put the issue at the top of the political agenda?
All I know is that if I were foolish enough to own GM stock right now, I would find Wagoner's silence on this issue to be something very close to a violation of his fiduciary responsibility.